California enacts major workers’ compensation reform: Significant changes for 2013 for the AV

Last fall, Governor Brown signed Senate Bill (S.B.) 863, legislation intended to address steadily increasing workers’ compensation costs in the state. An unusual coalition of California businesses and workers’ groups supported the new law, which had been in the works for 3 years.

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The law increases permanent disability benefits, which declined by 26 percent under the state’s 2004 workers’ comp reforms. But it also promises solid savings for employers, which saw the costs of workers’ comp insurance creep upward from $14.8 billion to $19 billion over the past 2 years. Earlier in 2012, the Workers’ Compensation Insurance Rating Bureau recommended a 12.6 percent increase in the premium rate for 2013; after passage of S.B. 863, the Bureau made a new recommendation of no increase.

The new law addresses other problems that arose out of the 2004 reforms by minimizing delays in medical treatment and improving access to care. Most of its provisions take effect January 1, 2013.

Reforms under the new law
With the new workers’ comp reform law, permanent disability benefits for employees will increase substantially. The increase is balanced by significant changes in the benefit delivery system that are intended to eliminate costly waste, inefficiencies, and loopholes.

The bill’s major reforms address:

Permanent disability.The law increases permanent disability (PD) benefits by 30 percent, or approximately $740 million per year. The increase will be phased in over a 2-year period and adjusts the formula for calculating the benefit amount so compensation amounts more accurately reflect the loss of future earnings. Other provisions ensure that injured workers will not receive smaller awards than under the existing system.

The new law limits the determination of the extent of PD to the consideration of the nature of the physical injury or disfigurement, the injured employee’s occupation, and his or her age when injured. It eliminates consideration of the individual injured worker’s diminished ability to compete in the open labor market or diminished future earning capacity.

These changes to the PD system are not intended to overrule Milpitas Unified School District v. Workers’ Comp. Appeals Bd. (Guzman), the new law states. That case established that the presumption that an American Medical Association Guide’s impairment rating is correct can be challenged.

The law also excludes, with some limitations, the ability to obtain increases in permanent disability ratings for sleep dysfunction, sexual dysfunction, and psychiatric disorders. It does, however, provide medical treatment for such conditions if they are a compensable consequence of an industrial injury.

Independent Medical Reviews.The law addresses the Independent Medical Review (IMR) process, which had become expensive and unwieldy and led to long delays in injured workers obtaining treatment, as well as poorer outcomes than necessary.

Under the existing system, when a disagreement about medical treatment issues arises, each side generally obtains its own medical opinion and argues for its position in front of a workers’ comp judge, rather than turning to the optional IMR process. The new law makes the IMR process mandatory for medical treatment disputes.

Under this system, an independent medical expert contracted by the administrative director of the state Division of Workers’ Compensation (DWC) will evaluate medical issues and make a decision about treatment based on standards drawn from the long-standing IMR process used to resolve medical disputes in the health insurance system, with workers’ compensation-specific modifications.

The decision of the IMR process is final and binding on the parties. A review process is available, but it does not allow the second-guessing of medical expertise. Rather, the appeal is limited to circumstances in which there was fraud, conflict of interest, discrimination based on protected classes, or clear mistakes of facts that don’t involve medical expertise.

The Workers’ Compensation Appeals Board (WCAB) will not have the authority to adjudicate medical treatment disputes that are directed to the IMR process. If the WCAB hears an appeal of an IMR determination (under one of the exceptions) and reverses it, the matter goes to the DWC administrative director to refer to another IMR for another decision. The WCAB—as well as workers’ comp judges and higher courts—may never make a determination of medical necessity contrary to the determination of the IMR organization.

A final determination in favor of the requested medical treatment following the IMR process won’t constitute conclusive evidence that the treatment was unreasonably delayed. But if the IMR process was used to unreasonably delay reasonable and necessary medical treatment, the injured worker can request penalties.

Medical Provider Networks.The 2004 workers’ compensation reform law introduced Medical Provider Networks (MPNs). MPNs were intended to give employers control of the selection of treating physicians, with the assumption that medical expenses would drop as a result. Costs, however, did not decrease as much as hoped, and injured workers have often had difficulty securing physicians in the networks.

The new law streamlines the process of approval for MPNs and eliminates some requirements that applied to them. It also limits the reasons employees can use to avoid obtaining treatment within an MPN.

Courts had ruled that an injured worker who hadn’t received appropriate MPN notices from his or her employer could seek treatment outside of the MPN.

The new law requires the employer to notify the worker of the existence of the MPN, the worker’s right to change primary treating physicians within the MPN, and how to do so. Failure to provide such notification, though, doesn’t entitle the worker to seek outside treatment unless it’s shown that the failure to provide notice resulted in a denial of medical care.

Self-insured employers should also note that as of January 1, 2014, each MPN must list its physicians on its website and provide medical assistants to help injured workers find a doctor within the MPN and make appointments.

Practice Tip: Employers are required to notify workers of their right to obtain independent medical review (IMR); penalties will be assessed against employers that don’t do so or don’t implement IMR decisions that favor the injured worker.